Ask HN: Are stock options as bonus worth anything?

#1

Post by saxmrussell » Mon, Apr 01, 2013, 8:36 PM UTC

(throwaway account, of course!)

I work for a startup where employees are paid performance-based bonuses at year end. Apparently I've killed it last year (yay me!) so management offered me a significant amount of cash as a bonus.

Icing on the cake is that they allow me to convert this cash to stock options. The options are struck about 20% below value of stock.

My question is this: do I take any options or not? I can definitely use the cash. Working like I have these past few years, I have no money in the bank and live paycheck to paycheck. The bonus, though not huge, would give me at least a few months of rent & basic expenses in case I lose my job or the company goes belly up.

A safety net is important to me because I have a wife and daughter to feed. If something were to happen to my ability to make money, they'd end up on the street.

Thanks a bunch folks.

Re: Ask HN: Are stock options as bonus worth anything?

#2

Post by jacksondeane » Mon, Apr 01, 2013, 8:55 PM UTC

Pretty straight forward here... take the cash. With a wife and family, you need some savings for a rainy day. I don't know your specific situation, but I rarely count on options as money in the bank.

Re: Ask HN: Are stock options as bonus worth anything?

#3

Post by belcherj » Mon, Apr 01, 2013, 8:57 PM UTC

Cash! Should the company go bust, you get fired, you can't work, etc. you must have a backup! I keep 3 to 6 months worth of cash on hand in a savings account that is at a bank not accessible from my day to day bank. That way I am not tempted to spend it. I never look at it. Ever.

If you do decide to go with the stock options have $50 of your direct deposit each paycheck go into the above mentioned savings account.

Re: Ask HN: Are stock options as bonus worth anything?

#4

Post by brudgers » Mon, Apr 01, 2013, 9:49 PM UTC

Choosing the options might be seen as a sign of commitment to the company and taking the cash might be seen as a lack thereof...

...or it might be just seen as choosing cash over options.

The interpretation is going to depend on the culture of the company and the personalities of management.

There's no canonically correct answer.

Re: Ask HN: Are stock options as bonus worth anything?

#5

Post by codegeek » Mon, Apr 01, 2013, 9:59 PM UTC

"A safety net is important to me because I have a wife and daughter to feed. If something were to happen to my ability to make money, they'd end up on the street."

Take the cash. Your situation demands it. Stock Options can always come later when it is time for next bonus.

Re: Ask HN: Are stock options as bonus worth anything?

#6

Post by patrickskim » Mon, Apr 01, 2013, 10:14 PM UTC

No, not unless your company is a public company. Bird in the hand.

Re: Ask HN: Are stock options as bonus worth anything?

#7

Post by argonaut » Mon, Apr 01, 2013, 10:28 PM UTC

I think you answered the question yourself in the last three paragraphs.

1. Are you given enough stock options such that the difference between the strike price and the "actual stock price" (how did you even determine the "value of stock"?) is equal to the cash you would receive otherwise?

Re: Ask HN: Are stock options as bonus worth anything?

#8

Post by saxmrussell » Mon, Apr 01, 2013, 10:30 PM UTC

argonaut wrote: post #7

I think you answered the question yourself in the last three paragraphs. 1. Are you given enough stock options such that the difference between the strike price and the "actual stock price" (how did you even determine the "value of stock"?) is equal to the cash you would receive otherwise?

Let me rephrase then:

s/value of stock/price of stock as determined by management/

Re: Ask HN: Are stock options as bonus worth anything?

#9

Post by mchannon » Mon, Apr 01, 2013, 11:00 PM UTC

Look at it a different way. You have $20,000 cash. It's yours, in your hand. It looks like it's your last $20,000. Do you want to invest it in your employer's company or yourself?

Re: Ask HN: Are stock options as bonus worth anything?

#10

Post by argonaut » Tue, Apr 02, 2013, 8:31 AM UTC

saxmrussell wrote: post #8

argonaut wrote: post #7

I think you answered the question yourself in the last three paragraphs. 1. Are you given enough stock options such that the difference between the strike price and the "actual stock price" (how did you even determine the "value of stock"?) is equal to the cash you would receive otherwise?

Let me rephrase then: s/value of stock/price of stock as determined by management/

That's only even more confusing. The strike price is by law supposed to be the "fair market value" of the stock option. So what do you mean by the "price of stock as determined by management." While the strike price is typically kept artificially low by use of 3rd-party audit firms that calculate valuations, how do you know management is not artificially inflating the price of stock (so as to give you a misconception of the worth of the stock).

Also, you should make clear what the cash equivalent of stock is. Is it cash = cumulative difference between strike price and "price of stock as determined by management"?